A Quantitative Analysis for Equitable Allocation

Authored by Dr. Bravious Felix Kahyoza (PhD, FMVA) and David Kafulila, this groundbreaking quantitative research examines the critical challenge of risk allocation imbalances in Tanzania's Public-Private Partnership (PPP) infrastructure projects, revealing how inequitable risk distribution undermines project performance and proposing data-driven solutions for sustainable infrastructure delivery aligned with Tanzania's Vision 2025.

With an estimated USD 15 billion annual infrastructure gap and only 20 active PPP projects as of 2024, Tanzania faces a critical juncture in infrastructure development. The paper argues that systematic risk-sharing imbalances—where the public sector bears 60-70% of total risks versus the optimal 40-50% benchmark—are causing 70% project delays, 20-50% cost overruns, and high-profile failures like the USD 10 billion Bagamoyo Port project, threatening the nation's economic transformation goals.

Key Findings and Insights

• Severe risk allocation imbalance: Quantitative analysis of 200 stakeholders across 18 major PPP projects (2010-2025) reveals that the public sector disproportionately absorbs exogenous risks—65% of political risks and 45% of financial risks—while private partners control 75% of construction risks, creating systemic inefficiencies.
• High perceived risk severity: Political risks scored highest in stakeholder perceptions (mean μ=4.2/5 on Likert scale), followed by financial risks (μ=3.8/5), reflecting concerns about regulatory instability, election-cycle disruptions, and currency fluctuations that deter private investment.
• Performance correlation confirmed: Statistical analysis demonstrates a strong positive correlation between equitable risk sharing and project performance (r=0.65, p<0.001), with multiple regression analysis showing that each unit increase in sharing equity boosts performance by 0.42 units (β=0.42, p<0.001).
• Factor analysis validation: Exploratory factor analysis identified two distinct risk clusters explaining 62.4% of variance: Factor 1 (Exogenous Risks)—political and financial risks with loadings of 0.72-0.85; and Factor 2 (Endogenous Risks)—construction and operational risks with loadings of 0.68-0.76.
• Institutional moderation effect: Regulatory stability and institutional capacity significantly moderate risk-sharing effectiveness (moderation β=0.28, p<0.01), with stronger governance frameworks boosting performance benefits by 25% in energy versus transport sectors.
• Quantified project impacts: Current imbalances contribute to 70% of projects experiencing 10-30% delays, with construction sector delays and financial constraints exacerbated by misaligned incentives and inadequate contractual protections.
• Regression model strength: The study's multiple linear regression models explain 58-62% of performance variance (R²=0.58-0.62), providing robust evidence for policy interventions and confirming that optimized risk allocation could reduce cost overruns by 15-20%.
• Below global benchmarks: Tanzania's private sector risk absorption (45-55% average) falls significantly below global standards of 60-70% in developed markets and even trails other African contexts, indicating substantial room for improvement through institutional strengthening.

Structural Challenges and Root Causes

The research identifies multiple interconnected factors driving risk allocation imbalances in Tanzania's PPP ecosystem:

Institutional Capacity Gaps:

• Limited technical expertise among 70% of public negotiators in Special Purpose Vehicles (SPVs) at municipal level
• Weak contract enforcement mechanisms leading to opportunistic bargaining by private parties
• Inadequate feasibility analysis causing 40% of implemented concessions to exceed budget

Regulatory and Legal Weaknesses:

• Ambiguous dispute resolution clauses in the 2010 PPP Act (amended 2023) increasing public exposure during political cycles
• Lengthy approval processes through PMO-RALG and Attorney General causing up to 3-year preparation delays
• Absence of mandatory viability gap funding mechanisms to support demand-risk sharing

Financial Constraints:

• Public sector contingent liabilities reaching TZS 500 billion (USD 200 million) in unresolved court cases as of 2023
• Over-optimistic revenue projections without proper risk-adjusted discount rates
• Macroeconomic volatility (inflation, currency fluctuations) disproportionately absorbed through public guarantees

Information Asymmetries:

• Unequal access to project information favoring private contractors in contract negotiations
• Limited transparency in risk assessment methodologies
• Absence of standardized risk matrices tailored to Tanzanian context

Case Study Evidence:

• Bagamoyo Port PPP: USD 10 billion project halted due to unresolved revenue-sharing clauses and environmental risk allocation disputes
• Standard Gauge Railway (SGR): Government absorbed majority of financial burden from land acquisition disputes and currency fluctuations
• UTT Land Demarcation PPP: Three-year delay in Mtwara Mikindani due to bureaucratic approval bottlenecks

Data-Driven Recommendations for Equitable Risk Allocation

To transform Tanzania's PPP framework from its current state of systemic imbalance to a model of sustainable, equitable partnership, the paper proposes comprehensive, evidence-based reforms:

1. Legislative and Regulatory Reforms:

• Amend the PPP Act (2023) to mandate viability gap funding with public exposure capped at 40% of total project risks
• Establish quantitative risk allocation thresholds in PPP regulations: maximum 25% public share for political risks, 40-45% for financial risks
• Implement fast-track dispute resolution mechanisms with binding arbitration clauses to reduce legal contingent liabilities
• Harmonize with EAC protocols on cross-border infrastructure to attract USD 50 billion in regional FDI

2. Institutional Capacity Building:

• Launch mandatory training programs for 500+ public negotiators annually covering:
  • Advanced contract negotiation techniques
  • Risk quantification methodologies (factor analysis, regression modeling)
  • Financial modeling and feasibility analysis
  • Performance-based contract design
• Establish a PPP Centre of Excellence at University of Dar es Salaam for continuous skills development
• Deploy standardized risk matrices based on study findings for all new PPP tenders

3. Financial Mechanism Innovations:

• Create a Risk Mitigation Facility with USD 500 million capitalization to provide:
  • Currency hedging instruments (reducing forex exposure from 45% to 25%)
  • Political risk insurance through multilateral partnerships
  • Performance bonds and guarantees for private partners
• Implement performance-based payment structures linking disbursements to risk management KPIs
• Establish blended finance vehicles combining public resources, development finance, and commercial capital

4. Enhanced Project Preparation:

• Require comprehensive risk impact assessments using factor analysis for all projects exceeding USD 50 million
• Develop lifecycle risk allocation schedules adjusting sharing ratios across preparation, construction, operation, and transfer phases
• Mandate independent third-party risk audits before financial close
• Apply sensitivity analysis (bootstrapping with 1,000 resamples) to test risk scenarios

5. Transparency and Monitoring Systems:

• Deploy digital PPP management platforms for real-time risk tracking and performance monitoring
• Publish quarterly risk allocation reports showing actual vs. planned distributions
• Establish annual PPP performance audits measuring:
  • Timeline adherence (targeting 30% improvement)
  • Cost variance (reducing overruns from 20-50% to <10%)
  • Risk-sharing equity index (achieving 70-80 score on 0-100 scale)
• Create stakeholder feedback mechanisms to capture perception shifts

6. Sector-Specific Strategies:

• Transport sector: Implement demand-risk sharing mechanisms (60% private, 40% public) with minimum revenue guarantees for first 5 operational years
• Energy sector: Leverage higher regulatory stability to increase private risk absorption to 70-75%, using Power Purchase Agreements (PPAs) as anchors
• Cross-sectoral: Develop insurance pools for force majeure events (10% shared allocation), reducing public contingent liabilities

Conclusion

Tanzania's PPP infrastructure program stands at a critical inflection point. The quantitative evidence presented in this study—drawn from rigorous statistical analysis of 200 stakeholders and 18 major projects—unequivocally demonstrates that current risk allocation patterns are unsustainable and systematically disadvantage the public sector while deterring private investment.

The authors emphasize that risk-sharing is not a zero-sum game but rather a strategic optimization challenge. The study's findings—particularly the 0.65 correlation between equitable sharing and performance and the 0.42 standardized regression coefficient—provide compelling evidence that properly balanced risk allocation can simultaneously:

• Reduce project delays by 15-30%
• Decrease cost overruns from 20-50% to below 10%
• Increase private sector confidence and participation
• Improve value-for-money outcomes for taxpayers
• Accelerate infrastructure delivery toward Vision 2025 goals

The research makes three vital contributions to PPP scholarship and practice:

Theoretical Advancement: By integrating Transaction Cost Theory with the World Bank Risk Allocation Framework and adding Tanzanian-specific moderators (institutional capacity, regulatory stability), the study extends global PPP theory into underrepresented African contexts—where only 12% of global PPP literature focuses despite disproportionate infrastructure needs.

Practical Tools: The study delivers actionable instruments including validated risk matrices, equitable sharing indices (0-100 scale), and performance prediction models that PPP practitioners can immediately deploy in project preparation and contract negotiation.

Policy Blueprint: The evidence-based recommendations provide a comprehensive reform roadmap for the Tanzanian government, addressing legislative gaps, capacity constraints, and financial mechanisms required to unlock the USD 15 billion annual infrastructure investment needed for middle-income country status.

By 2030, if these reforms are implemented, Tanzania could transform its PPP portfolio from 20 struggling projects to a robust pipeline of 50+ high-performing partnerships, positioning the nation as an East African leader in infrastructure finance and demonstrating that equitable risk-sharing is the foundation for sustainable public-private collaboration.

The study concludes with an urgent call to action: risk allocation reform is not optional—it is imperative for realizing Tanzania's development aspirations. Through data-driven policy, institutional strengthening, and transparent governance, Tanzania can turn PPP challenges into opportunities, converting its infrastructure gap into a catalyst for inclusive economic transformation.

📘 Read the Full Research Paper:
"Exploring the Dynamics of Risk Sharing in Tanzania's PPP Infrastructure Projects"
Authored by Dr. Bravious Felix Kahyoza (PhD, FMVA) and David Kafulila
Published by TICGL | Tanzania Investment and Consultant Group Ltd
🌐 www.ticgl.com